Getting In Cheap On Hino Motors, Ltd. (TSE:7205) Might Be Difficult

With a median price-to-sales (or "P/S") ratio of close to 0.6x in the Machinery industry in Japan, you could be forgiven for feeling indifferent about Hino Motors, Ltd.'s (TSE:7205) P/S ratio of 0.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Hino Motors

What Does Hino Motors' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Hino Motors has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Hino Motors' future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Hino Motors' to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. That's essentially a continuation of what we've seen over the last three years, as its revenue growth has been virtually non-existent for that entire period. So it seems apparent to us that the company has struggled to grow revenue meaningfully over that time.

Turning to the outlook, the next three years should generate growth of 5.2% each year as estimated by the eleven analysts watching the company. That's shaping up to be similar to the 5.4% each year growth forecast for the broader industry.

With this information, we can see why Hino Motors is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On Hino Motors' P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

A Hino Motors' P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Machinery industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Hino Motors (1 is potentially serious!) that you should be aware of before investing here.

If you're unsure about the strength of Hino Motors' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.